On November 6, 2012 America decided to vote for no change, keeping the balance of power between the House, Senate, and Executive branch. The election seems to have turned on President Obama's appeal to single women worried about birth control, Hispanics worried about immigration, students worried about coolness, and stay at home conservatives. It perhaps also turned on revenge against the 1%. The Media abetted the story line with shallow commentary, hyping for an election "To Close to Call" just in time to push $100M in media buys.
Whatever the reason for America's decision, the reality is that taxes and government will continue to consume disproportionate resources to pay off our past excesses and future entitlements. 43% of those that voted, a large fraction of those voting for President Obama, think government should do more. Since government ultimately gets money from taxpayers (through the IRS or Fed QE 1, 2, 3 or X), that means 43% of the voters want things from the other 57% of voters. Politicians call this 57% the 1%. If you are part of the 57% you might consider the following steps to protect your finances. Actually, since the Government won't be able to offer more goodies for the 43%, they may also want to pay attention for when the music stops.
Please do not get sanctimonious about how we need to help the poor. We help the poor in this country in incredible ways. We could probably do a better job yet if those who are not poor did not put themselves in the handout category. While the poor represent 15% or less of our country, almost 34% of households receive some form of “Means Tested” benefits from the government. Programs like social security, aimed a destitute widows, is now a means to take investment income and redirect it to middle class retirees with more than enough retirement income and resources. Programs like SNAP, designed to feed the poor, have gone from 17M to 40M people in the last few years. Under federal guidelines, a family of four with an household income of $50K qualifies.
If you believe that government needs to do more to help those in trouble, take some responsibility to understand what you are talking about. Take some responsibility to be sure these programs are targeting the people that really need help. Hold these programs accountable for transitioning people out of bad situations. Take some responsibility to be sure that others, who have enough of their own means, do not game the system. Ultimately the failure to assure the welfare system is focused on the most needy puts a tax on growth and opportunity, the very same opportunity that will transition people out of the welfare state. It is unlikely that the vocal among the “43%” will realize the system is unstable and cut their own throat. The best way to transform the system at this point is to accelerate the breaking point. The way to accelerate the breaking point is to save money and highlight hypocrisy. Some ideas include:Entertainment
- Cable TV: Cancel your Comcast etc. cable TV subscriptions, but keep high speed internet. Buy an antenna from Antennas Direct to get high quality free live TV for things like sports.
- Kindle: Buy a Kindle. You can get the movies/shows/books you want at a lower price than the Apple mafia (I also think Apple is cool, but they cost 25%-35% more for essentially the same service). Amazon also provides Netflix/Hulu like services.
- Cancel Hulu: Hulu is owned by a consortium of media companies that all pumped up the Obama story. They don't need any help - Link to Canceling.
- Newspapers: Cancel all your newspapers and magazines. You can get the ones that survive on-line for less (or free as they spiral into nothing).
- Main stream Media: Stop watching TV news. Its all crap and misleading. Sooner or later drops in viewership will show up in Nielsen ratings. Read Wall Street Journal Opinion and Financial sections to improve your ability to interpret the news. You can probably get a better sense of world news from Al Jazeera (at least they are clear about their bias). Christian Science Monitor is also very good for international news. If you see misleading information on TV send a note to the Media Research Center so they can follow up. Not the shows advertisers, inform them of your concern. Tweet about the bad media/related advertiser with hashtag #OpSLAM.
- Thrift: There is a good old word in economics called thrift. It means "Savings". Unbeknownst to many, people who consistently save actually can accumulate a great deal of money. That Baptist minister down the street living in the modest home may have put away 200k-300k of extra savings. Your Grandparents home, purchased 40 years ago for 60K, might be worth 1.5M today. Why do you think there are so many reverse mortgage commercials? ITs probably best to avoid the stock market for a while. Cash is king in this market. Put money in your savings account (its a bother to move it out). Save for retirement using an annuity (social security may not be around).
- Reduce Mortgage: We may enter a deflationary period. If you have a mortgage, you will be caught between declining wages and a fixed cost of mortgage. You need to get that down as much as you can so you don't run into a cash flow problem (Salary drops in half but mortgage doesn't). Perhaps sell securities to pay down mortgage, or better yet sell your house and rent.
- Tax Bracket: If you can cut your budget enough, try to defer income into form of equity or other later payments (that you can extract after 4 years).
- Estate Planning: If you think you will have extra assets in your estate, figure out how much money you can gift to your children each year (say $1000). Then buy an insurance policy against yourself where the premium is equal to that annual gift ($1000). Gift them the $1000 each year, and have them redirect it to pay the policy. When you die, the insurance policy will offset the cost of ever increasing death taxes.
- Charitable Contributions: Your ability to deduct charitable contributions is going down, so provide your time instead of donations to charities. Support charities that are innovating social services rather than ones stuck on government grants. Colleges and planned parenthood have more than enough money.
- Capture Capital Gains: If you have capital gains, sell stocks before the end of 2012 to get a lower capital gains rate. If you really want the stock long term, buy it back after 30 days (it will probably go lower yet in the near term cap gains driven sell off).
- Small Business Owners/Workers: In the end, its all about take home pay. Salary etc before taxes means nothing. Government, Company and spousal work benefits all need to enter into the calculus income/benefits.
- If you have Employees: If you run a business with more than 50 hourly employees, as much as it will hurt doing this to them, you need to reduce their hours below 30 hours/week avoid Obama care requirements.
- If you are an Hourly Employee: If you are an hourly employee, its better to find a part time job with less than 30 hours per week because your net take home pay after other benefits is higher than full time. (30 hours/week and Medicaid vs. 40 hours and company health care).
- College: Have your kids apply to get into the best college they can. Then tell the college you don't have enough money, can you defer admissions. Take classes on line via MIT/Stanford. Attend local community college to get academic credit using MIT Open Courseware/Stanford On-line materials. After 2 years, attend the original college for the final 2 years. Graduate with brand name university but only pay for 2 years of college.
- High School: Use Khan Academy to self teach advanced placement courses and classes. Improve quality of your education to help get scholarships and place out of college courses (reduce your time in high school to 3 years, and college to 3 years). That adds 2 years of full time income production. Remember to save, save, save (thrift).
- K-12: Home school or demand charter schools. Push local community to pay students to complete education in shorter period using self paced/on-line education systems.
- Grand Parents: If your parents have extra resources, have them pay for elements of your kids education. This is a tax free transfer to get around estate taxes. When your grand child graduates open up an annuity for him and pay in the first installment. The lessons of thrift yields life long benefits.
- Automobile: Buy used cars from leasing companies like Enterprise. Today's cars will last 8-10 years. Enterprise runs a straight forward no haggle used car business. Because these are typically leased cars, not rentals, the cars are in good shape and a good price.
- Food: Make meals at home. Quality at quick serve restaurants will be going down because they will be keeping employees under the 30hr/wk limit to avoid Obama care. Take a look at free on-line cooking classes (Todd Mohr)
- Telephone: Get rid of telephone, use only mobile phone
- Do not accumulate education debt. It does not pay back any time soon. On line solutions are good enough.
While it may seem destructive to others to curtail personal spending, it is important for voters to see the connection between economic activity and prosperity. Somewhere in our discourse, 43% of voters think that there is an endless supply of money from the 1% (really the 57%) that can underwrite the needs of everyone else in the United States. Frankly everyone in Washington knows the 1% can not possibly carry the bulk of costs or even a small amount of the costs. Its a deception by both sides of government. Some voters think redistribution will improve their lives more than productivity and prosperity. They are wrong (see Atlas Shrugged). For those the believe we are all better if government focuses on its core responsibilities, the example of our own success outweighs a politician's promise.